What is Marine Insurance?
Marine insurance is an agreement between an insurer and the insured whereby the insurer accepts to indemnify the insured (to the extent thereby agreed) against losses incurred while goods in transit through sea, air, or rail. A marine insurance contract may be extended further than what was agreed upon for protecting the insured against transit losses or any land risk incidental to a sea voyage. Therefore, in simple words, marine insurance includes the following:
Table of Content
- 1 What is Marine Insurance?
- 2 Essential Elements of Marine Insurance Contract
- 3 Objectives of Marine Insurance
- 4 Types of Marine Insurance Policy
- 5 Primary Branches of Marine Property Insurance
- 6 Legal Provisions of Marine Cargo Insurance
- 7 How to Claim
- 8 Key Documents Required for the Settlement of Marine Insurance Claim
Cargo Insurance
This provides insurance cover against the loss of or damage to transit goods by rail, road, sea, or air. It covers the following:
- Export and import shipments through sea
- Coastal shipments via steamers, vessels, ships, etc.
- Inland shipments via vessels or country craft
- Postal consignments by rail, road, or air
Hull Insurance
It is an insurance policy that provides coverage for the physical integrity of a ship. This is concerned with the insurance of ships (hull, machinery, etc.).
The following items are covered under hull insurance:
- All types of ocean-going vessels
- All type of coastal/inland vessels
- Yard and pleasure crafts
- Port crafts
- Shipbuilding-construction of vessel
- Ship repairers’ liabilities
- Charterers liabilities
- Breaches of warranties / voyage cover
- Freight-at-risks insurance for voyages
- Dredgers
- Fishing vessels/trawlers
- Sailing vessels
- Jetties (with or without cranes), fixed pontoons/pontoons jetties, wharves etc.
- Ship breaking
Essential Elements of Marine Insurance Contract
Elements of a General Contract
In a marine insurance contract, there are all elements of a general insurance contract. Some essential elements of general contracts are explained as follows:
- Two parties: In a contract of marine insurance, there are two parties to the contract namely an insurance company and the insurance holder.
- Offer and acceptance: Like a general contract, an insurance holder offers an evidence slip to underwriters to accept the policy. This slip form the evidence that the underwriter has accepted insurance and that he has agreed to issue the policy on the terms and conditions indicated on the slip.
- Legal consideration: As a natural contract, the insurer makes confirmation to the insurance holder for deducing risk by money. It is given by the insurer to the insurance holder.
- Capacity of contract: This refers to the capacity of an individual to enter into a legal agreement and the competence to perform an act.
- Legal object: The contract should be legal in nature.
- Consent: Both parties need to agree with the terms and conditions of the contract.
- Certainty: The subject matter of insurance should be reliable.
- Written: Contract must be issued in written.
Utmost Good Faith
Section 19, 20, 21 and 22 of the Marine Insurance Act 1963 explained the doctrine of utmost good faith. The doctrine of the caveat emptor (let the buyer beware) applies to commercial contracts but insurance contracts are based upon the legal principle of uberrima fides (utmost good faith). If this is not observed by either of the parties, the contract can be avoided by the other party.
Doctrine of Indemnity
Section 3 of the Marine Insurance Act provides that a contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured in a manner and extent agreed upon by both parties to the contract. The contract of marine insurance is of indemnity. Under no circumstances, an insured is allowed to make a profit out of a claim.
In the absence of the principle of indemnity, it was possible to make a profit. The insurer agrees to indemnify the assured only in a manner and only to the extent agreed upon. Marine insurance fails to provide complete indemnity due to large and the varied nature of the marine voyage.
Doctrine of Subrogation
Section 79 of the Act explains the doctrine of subrogation. The aim of the doctrine of subrogation is that the insured should not get more than the actual loss or damage.
Warranties
A warranty is that by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts.
Proximate Cause
According to Section 55 (1) Marine Insurance Act,’ Subject to the provisions of the Act and unless the policy otherwise provides the insurer is liable for any loss proximately caused by a peril insured against, but subject to as aforesaid he is not liable for any loss which is not proximately caused by a peril insured against.’
Assignment
A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. A marine policy may be assigned by endorsement thereon or on other customary manner.
Objectives of Marine Insurance
Marine insurance plays a significant role in domestic as well as international trade. Most sale contracts require that the goods should be covered against the loss or damage either by the seller or the buyer. Marine insurance provides coverage against the loss or damage of goods in transit.
Some of the major objectives of marine insurance are to:
- Cover the loss of hull and equipment along with a legal liability generating from the ownership or operation of the ship/craft.
- Cover the physical loss of or damage to goods in transit across domestic as well as international water, air, road, or rail.
- Cover the legal liability for the ownership of a vessel.
- Cover the damage to a third-party property.
- Protect the goods carrier who operates using approved consignment notes, contracts of carriage against their liability for loss or damage to customers’ goods or livestock in transit.
- Cover the physical loss of or damage to hull, machinery, etc. of vessels against fire, explosion, or perils of the sea.
- Cover a liability for the repair and maintenance of vessel.
- Provide a liability, property, and equipment insurance to marine terminals, inland clearance depots, sea terminals, freight stations, storage depots, and airfreight handling terminals.
Types of Marine Insurance Policy
A marine insurance policy covers goods, freight, and other interests against loss or damage to goods being transported by rail, road, sea, and/or air. The transportation of goods can be classified into three broad categories, as shown in Figure:
These types of insurance are explained as follows:
- Inland transit: Transport of goods within sea boundaries
- Import: Receive goods from another country.
- Export: Transport of goods to another country
Based on this, the following types of policies are issued to cover the transit losses/damage:
Inland Transit
There are four major policies for an inland transport, which are as follows:
- Specific policy: This policy covers a specific single shipment for goods, freight, and other interests against loss or damage while being transported by rail, road, sea and/or air.
- Open policy: It covers the transportation of routine consignments over the same path. The open policy may be acquired for a time period of three months of dispatches with an advance premium payment. As every consignment gets dispatched, a declaration with the details of the dispatch needs to be sent to the insurer.
The sum insured is deducted by the amount of declared dispatch and may also be increased for an unlimited number of times during the policy period of one year. However, one needs to take care that an adequate sum insured is available to cover the consignment. - Special declaration policy: It covers inland goods transit whereby the value of goods shipped in a span of one year exceeds ₹2 crores. Although the premium for the expected annual turnover (estimated value of goods to be transported in that year) needs to be paid in advance, there are premium discounts available in the policy.
- Multi-transit policy: It covers manifold transits of the same consignment comprising intermediate storage and processing. This policy covers goods right from raw material to the final product.
Import/Export
There are three major policies for the import/export of goods, which are explained as follows:
- Specific policy: This policy covers a specific single shipment for goods, freight, and other interests against loss or damage while being transported by rail, road, sea, and/or air.
- Open cover: This policy is issued for a period of 12 months. It indicates the rates and terms and conditions agreed upon by the insured and the insurer for covering the consignments that need to be imported or exported. This requires a declaration to be made to the insurance company as and when a consignment is imported or exported along with the premium at the agreed rate. The insurance company would then issue a certificate covering the declared consignment.
- Customs duty cover: This policy covers a loss of customs duty paid if transit goods are received in a damaged condition. Customs duty cover is generally acquired even if the overseas transit is covered by an insurance company situated abroad. The cover is still taken before the goods arrived at the shores of India.
In India, the marine insurance policy in case of inland and import/ export broadly fall into either of the following types of policies:
- Special declaration policy: It is a type of floating policy issued to clients with an annual turnover (estimated dispatches) by rail/ road/waterways above ₹2 crores. Declaration of dispatches is done at periodical intervals whereby the premium is adjusted on the expiry of the policy based on the total declared amount. At the time of issuing the policy, the sum insured is based on the previous year’s turnover or on a fair estimate of annual dispatches (in case of new proposals).For annual turnover exceeding ₹5 crore, a premium discount and loss ratio on a slab basis is applicable.
- Special storage risks insurance: This insurance is granted alongside an open or special declaration policy. The objective of the policy is to cover goods lying at the railways or carriers’ godowns once the transit cover gets terminated but the clearance of goods by the consignees is awaited. The cover ends once the delivery is received by the consignee or a payment is received by the consignor, whichever is the earliest.
- Annual policy: Such a policy is issued for a period of one year and covers goods belonging to the insured, which do not come under the contract of sale and are in transit by rail, road, or specific depots, processing units, etc.
- Duty insurance: According to the Customs Act, shipment imported into India is subject to the payment of customs duty. The customs duty is either included in the value of the cargo insured under a Marine Cargo Policy or a separate policy could be made whereby the Duty Insurance Clause is incorporated in the policy. This includes a warranty according to which the claim under the ‘duty insurance’ is payable only if the claim under the cargo policy is payable.
- Increased value insurance: This policy is related to ‘goods at destination port’ on the date of landing if it is higher than the duty charged on the cargo.
Primary Branches of Marine Property Insurance
Cargo Insurance
Cargo insurance covers the interest of shippers, consignees, distributors, and others in goods and merchandise shipped primarily by water or, if in foreign trade, also by air. Most cargo insurance involves foreign trade across oceans, but the cargo may also be transported within a nation or between nations on inland waterways.
Hull and Machinery Insurance
This type of insurance protects ship-owners and others with an interest in vessels, and the like against the expenses that might be incurred in repairing or replacing such property if it is damaged, destroyed, or lost due to a covered peril. Usually, hull insurance on pleasure craft and tugs and barges, is provided as part of a package policy providing both property and liability coverage.
Loss of Income Insurance
Marine loss of income insurance covers a ship-owner against loss of business income resulting from damage to or loss of the insured vessel. When written for cargo vessels, whose income is called freight, the coverage is referred to as freight insurance.
Legal Provisions of Marine Cargo Insurance
Insurance law in India originates from the UK Insurance Law with the establishment of a British firm in Kolkata by the name of Oriental Life Insurance Company in 1818 followed by Bombay Life Assurance Company in 1823, Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874.
India’s first general insurance company was the Indian Mercantile Insurance Company Ltd. established in Bombay in 1907. The first Indian law for regulating the life insurance business was given in 1912 with the passing of Indian Life Assurance Companies Act, 1912. Currently, the principal legislation for the regulation of insurance business in India is Insurance Act, 1938, which regulates both life insurance and general insurance.
General insurance includes fire insurance business, marine insurance business and miscellaneous insurance business. Marine insurance business is generally spread at the international level; thus, it is subject to international regulations. The marine insurance business is regulated under Marine Insurance Act, 1963, in India under the guidance of various clauses framed by the Institute of London Underwriters (ILU) and the International Commercial Terms, known as ‘Incoterms’ developed by ICC (International Chamber of Commerce).
Marine Insurance Act, 1963 regulates the transaction of marine insurance of hull, cargo, and freight. It also includes the provisions of section 64VB of Insurance Act, 1938 on the payment of premium in advance of risk commencement (Sections 64VB (1) and 64VB (5) of Insurance Act, 1938). A marine insurance policy includes a document that embodies all particulars as well as terms and conditions related to the insurance policy. The insurance contract should be included in the policy.
A contract of marine insurance is not admitted in evidence until the time it gets embodied in a marine policy according to Section 25 of the Marine Insurance Act. The policy can be executed either at the time of concluding the contract or later. The policy needs to be attested by or on behalf of the insurer.
It must contain the following:
- Name of the assured;
- Subject matter insured and the risk insured against;
- Voyage, or period of time, or both, as the case may be, covered by the insurance;
- Sum or sums insured;
- Name or names of the insurer or insurers.
Let us discuss what is included in the subject matter and assignment of a marine insurance policy:
Subject Matter
Anything with respect to which there is a risk of loss from sea perils could be the subject of marine insurance. Subject matter should be included in a marine policy with reasonable certainty (Section 28[1]). The nature and extent of the interest of the assured in the subject matter insured need not be specified in the policy (Section 28[2]). Where the policy designates the subject matter insured in general terms, it shall be construed to apply to the interest intended by the assured to be covered (Section 28[3]).
Assignment of Policy
A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting assignment (Section 52[1]). A policy on goods is usually freely assignable. Commodities such as tea, jute, and wheat are transacted before they reach their destination; therefore, policies on these goods must be freely exchangeable. The policies on ship and freight both are subject to restrictions on assignment.
How to Claim
The following steps should be taken by the insured in event of a loss or damage to goods insured:
- Take immediate steps to minimise loss.
- Inform nearest office of the insurance company or claim settling agent mentioned on the policy.
- In case of damage to goods whilst on ship or port, arrange for joint ship survey or port survey.
- Lodge monetary claim with carrier within stipulated time period.
- Submit duly assigned insurance policy/certificate along with the original invoice and other documents required to substantiate the claim such as:
- Bill of Lading / AWB/GR
- Packing list
- Copies of correspondence exchanged with carriers.
- Copy of notice served on carriers along with acknowledgment/receipt.
- Shortage/Damage Certificate issued by carriers.
- Survey fees are to be paid to the surveyor appointed by the insurance company. These fees will be reimbursed along with the claim if the claim is otherwise admissible. vii. Survey report submitted by Survey
Key Documents Required for the Settlement of Marine Insurance Claim
- Claim form containing the following information:
- Date, time, cause, and circumstance of the loss
- Details of damaged/loss vessel
- Amount of loss claimed
- Other insurance, if any
- Certified copy of note of protest by master
- Payment details of premium amount paid
- Insured’s report on occurrence
- Survey reports where a claim’s amount is over ₹20,000/- as per provisions of Insurance Act, 1938
- Original repair bill, cash memo, invoices
- Weather report by the meteorological department, if available
- Affidavits filed by rescue vessels
- Certificate of survey for inland vessels
- Registry certificate
- Notarised statements of the master of the vessel
- Log Book extracts
- Crew list with details of competency certificates
- Copy of claim bill with supporting documents
- V.R.C. cancellation certificate
- Death certificate of crew for Personal Accident (P.A.) claim
- Post mortem report of crew for P.A. claim
- Disability certificate from a doctor of the crew for P.A. claim
- Legal heir certificate of crew for P.A. claim
- Letter of undertaking where applicable
